Jet Fuel Insights: Exports out of USGC

Author Argus

This final episode of our four-part podcast miniseries considers how the freight market affects jet fuel prices around the globe.

In this fourth episode of Jet Fuel Insights, where we discuss the price implications of three major jet fuel trad routes, Louise Burke, Wendy Dulaney, and Michael Connolly give you a breakdown of U.S. jet fuel trade routes out of the U.S. Gulf coast and the shifts in demand in Canada and Mexico.

Jet fuel trade routes

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Louise: Hello and welcome to our new podcast series that focuses on key jet fuel trade routes across the globe. In this miniseries, we'll be discussing three key local jet trade routes: Belize to Europe, Asia to the U.S. West coast and Latin America, and U.S. Gulf Coast to Latin America and other regions.

Today, we will discuss the jet trade flow from the U.S. Gulf coast. This podcast episode is brought to you by Argus Media, which is a leading independent provider of energy and commodity information. My name is Louise Burke and I'm the vice president of aviation here at Argus. And with me today is Wendy Dulaney who is our U.S. middle distillate jet reporter for the U.S. Gulf coast and Michael Connolly who sits on our freight desk and is our freight reporter for the region.

Welcome to you both, Wendy and Michael.

Michael: Thanks, Louise. Great to be here.

Wendy: Thank you, Louise. Good morning.

Louise: Thanks again to both of you. I think this is going to be a really interesting session. There's always a lot of activity going on in this region so I'm very keen to hear about your perspective on the jet trade flows and how that affects our key benchmarks for the region, the U.S. Gulf coast jet kero index and of course freight rates. So let's start off with getting a good handle on typical activity in the U.S. Gulf coast. Wendy, can you provide us with an overview of who are the key exporters in the region and the main destinations?

Wendy: Hi, Louise. Sure. So for the 12 months before COVID started to really affect jet fuel export demand, we averaged about 6.8mn barrels per month being exported from the Gulf. And that fell dramatically to a minimum in May of only about 700,000 barrels total leaving the Gulf. Typically our two biggest partners are Mexico and Canada. Mexico is a slightly bigger one. Their average before Covid for the 12 months before was about 1.8mn barrels a month.

Mexico is harder to quantify because they take shipments of fuel by both waterborne and land routes, rail and truck, and they're also a bit more uneven on how much they take all the time. For example, they took no jet fuel in February even though Covid had not quite hit. They fell dramatically but we're seeing maybe some hints of a recovery. Vortexa is estimating that, in September, Mexico may have demanded around half a million barrels for the month just on waterborne. So we may be seeing some signs of recovery there a little bit.

Canada is normally...they're a bit more even trading partner and take a more regular amount. They normally take about 1.6mn barrels per month. In March and April, that's a loss to less than 100,000 barrels per month, but they have also picked up a little bit. We're seeing 500,000 to 700,000 barrels per month through June and July. Vortexa is … it's a bit hard to tell what's going on with Canada for the last two months, so we'll just have to wait and see. Panama is our third biggest trading partner. They take about a third as much as Canada or Mexico. Panama is also a bit harder to quantify because they're a storage hub, so a lot of what goes to Panama isn't intended for there but it continues on to other destinations and we don't always know where it goes. But Vortexa is also estimating that, in September, they took a normal amount, which is about 500,000 barrels for the month. By comparison, from March through July, Panama only took 100,000 barrels in total. So there's a huge drop-off.

But we're seeing a stabilization, it looks like, in flight demand that happened around July and has continued, and we're seeing a bit of a stabilization in overall jet exports week over week that coincides with that.

Louise: Okay, that's really interesting. And of course jet prices are not only affected by the exports, but we saw U.S. jet prices continuing to decline due to the unpredictability of domestic demand as well.

So I have a question as it relates to not only the jet spot price but the forward curve. Can you give us a perspective on that as well, Wendy?

Wendy: Yes, my jet fuel forward curve is for cycle to cycle, and those are about six-day cycles, but it has stayed in a really strong backwardation which backwardation is an indication that the market feels supply is a bit high currently or they don't expect demand to improve going forward which is obviously true. A few times it's gone flat, but that's been during weeks when the airlines felt optimistic about the recovery and demand.

And we've seen that, since July when air travel stabilized and stopped improving and airlines started to dig in for the long haul that the forward curve has moved into a strong backwardation again of almost... It's somewhere between a quarter and a full cent per week backwardation.

Louise: Okay, great. Thanks for that. And we know that jet of course is part of the whole middle distillate cut for the refiner. We hear a lot about the distillate supply. Can you comment on how the mounting diesel overhang is eroding margins in general for refineries and how jet fits into that equation?

Wendy: Yes. One thing that's important to note is that the diesel overhang was purposeful. There began to be a very strong contango in the Nymex forward structure, which meant with prices being so low, the best chance of profit was in storing diesel. And, in fact, we saw trading arms as some refiners make record profits in the summer based on writing that contango. So that became a big deal.

So what happened is, as everyone wanted to store more and more diesel purposely, they wanted to clear their stocks of jet fuel. So you saw people not buying it as they typically would but actually moving it out of storage. And that further depressed demand and the price as well. So diesel's had a huge effect on it.

Louise: Yeah. And definitely I think some of the information you've been reporting on clearly states that. So let's move a little bit more to the freight side. I'm going to ask Michael. Wendy did talk about how the change in jet fuel export volume has occurred because of Covid-19. Can you comment on where any specific destinations have been more heavily affected?

Michael: Oh, yes, Louise. Yeah, jet fuel exports out of the U.S. Gulf coast have obviously been hit very hard by the Covid-19 outbreak and subsequent recession. Through the first three quarters of 2020, we saw a 55pc drop in total jet fuel exports out of the U.S. Gulf coast to an average of about 77,000 b/d. We saw declines in each of the first three quarters of this year, and the steepest decline occurred in the third quarter. Jet fuel exports fell out of the U.S. Gulf coast by 74pc year over year to less than 45,000 b/d.

Now, in terms of how these drop-in volumes have affected specific destinations, we've seen the sharpest decrease in shipments to Mexico which was the top US jet fuel importer in 2019 when they've accounted for about 21pc of total volumes in the first three quarters of that year. Mexico has now fallen to the second largest importer in 2020 accounting for less than 10pc of the total volumes through the first three quarters of this year. In total, U.S. Gulf coast to Mexico jet fuel shipments fell by 60pc year over year in the first three quarters of 2020.

So Canada has now overtaken Mexico as the top destination for U.S. Gulf coast jet fuel exports this year. Its share has risen from 13pc in 2019 to about 19pc in 2020. Although similar to every other destination, the total volumes of jet fuel imports from the U.S. Gulf coast are down. They're down about 34pc in the first three quarters of this year and now looking at the totality of Latin America, Central America, which includes the countries of Belize, Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, and Panama, now that region was the top importer of U.S. jet fuel last year. It accounted for about 37pc of total jet fuel imports, and that share has now fallen to 23pc in the first three quarters of this year. And the total volumes to that region are down by 72pc.

Europe has now overtaken Central America as the top regional importer of U.S. jet fuel. And looking at the totality of Latin America, shares of exports to the Carribbean and South America have been relatively stable year over year although obviously, their total volumes are down.

Louise: Thanks for that, Michael. That was really interesting. It looks like trade flows and volumes have changed. So just for follow-up, what have been the drivers or drivers now for the clean tanker market rates as it relates... Is it Covid-19? Is it weather?

Michael: Covid-19 has been an impact throughout the year. It's weighed on global oil export demand throughout the world, but if you look specifically at the U.S. Gulf coast in the last few months, rates have stagnated near year-to-date lows because of various hurricanes and tropical storms in the region which have disrupted operations at ports and terminals and weighed on clean product export volumes in the region.

The most severe storm in terms of disrupting the U.S. Gulf coast clean product exports was Hurricane Laura, which in late August directly hit Houston, Corpus Christi, and surrounding Texas ports. And those ports are the primary export hubs in the U.S. Gulf coast accounting for more than 60pc of total clean export volumes this year.

Louise: Okay, that's really interesting. And of course, as you say, the weather-related factors do impact on these flows. I am curious about one other part of the equation as we see so much additional volume being out in the marketplace and limited demand. Can you comment on how Covid-19 has affected jet fuel floating storage?

Michael: Yes. Currently, a little less than 11mn barrels of jet fuel are in floating storage. About 8.5mn of those barrels are floating in European waters, 1.3mn barrels are floating near Asia, and the remaining 350,000 barrels are floating near West Africa. This 11mn figure is down from the peak of more than 20mn barrels which we saw in mid-August although volumes have risen significantly from the low this year in mid-February of about 84,000 barrels.

The Americas saw small spikes in jet fuel floating storage earlier this year, but currently none of the product is being floated in the region. And if you look at how this has impacted freight rates, actually U.S. Gulf coast freight rates on average this year have been stronger than in 2019 because that floating storage demand throughout the summer tightened a lot of available time to supply. For example, if you look at the U.S. Gulf coast to Europe MR tanker rate and MR tankers carry 38,000-ton cargos, that is average $19.78/t this year. That's a 42pc year over year on average, and the U.S. Gulf coast to Chile medium-range tanker rate has averaged about 1.5mn lump sum and that's up 26pc year over year.

Louise: Okay, so we can clearly see that this demand destruction for the year has affected refiner operations and also storage, as you say, has become very key to the whole marketplace. So, great insights, Wendy and Michael. Thank you so much for participating in the session. It's been great talking to you. And if you enjoyed this podcast episode, please be sure to tune in for the other episodes in the series. And for more information on Argus jet fuel coverage, please visit Thank you, everyone.

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